Higher CPO price expected due to El Nino   

Dry weather brought about by the El Nino phenomenon has affected many oil palm plantations in Malaysia, with conditions set to become more extreme into the middle of next year.

Industry players say that prolonged dry weather could negatively impact the global production of palm oil, thus triggering speculation of a higher CPO price in the coming months. The occurrence of El Nino from 2009-2010 had seen the price swinging between RM2,500 and RM3,000 per tonne.

“History has shown that CPO price reacts positively every time El Nino occurs, as it brings less rainfall and [causes] drought, which tends to lower the crop production,” says Sabah-based IJM Plantations Bhd CEO and managing director Joseph Tek Choon Yee.

Weather is just one of the many factors determining price. Also in the mix are competition from other edible oils, crude mineral oil price, use of palm oil in biodiesel, inventory levels, currency volatility and policies.

“But a strong and significant El Nino this time round will be a major catalyst in driving up the CPO price trend on a gradual basis but with greater certainty,” Tek told StarBiz.

Malaysia posted its largest drop in CPO production during the strong El Nino from 1982-1983 and again from 1997-1998.

Tek pointed out that there had been prolonged “bone-dry” episodes or below-average rainfall since early this year in some parts of Malaysia and Indonesia.

“These episodes have triggered dry soil conditions, which have led to moisture stress in palms. Significant unopened numbers of spear (palm leaves) of up to half a dozen were observed, confirming the trauma experienced by the trees.”

Oil World has reported that Sabah, Pahang, Perak and Negri Sembilan experienced below-normal rainfall and suggests that there will be lower palm oil yields in the affected areas between October this year and March next year.

Tek, who is also president of the Malaysian Estate Owners Association, elaborated on the potential effects of El Nino on the palm oil output and plantation operations.

“There will potentially be clear symptoms relating to crop production arising from the interplay of plant physiology and climatic El Nino effects following any significant moisture stress beyond two months.

“The immediate impact will see a delay in ripening of bunches and dangers of fire hazards from the dry spell in operations.

“On the milling side, some palm oil mills may end up with the concern of long-term availability of water for processing. Thus, the estate-mill supply chain may be disrupted.”

On the potential total reduction in crop production, Tek said this would depend on the severity of the moisture stress, with studies quoting up to 30% lower than normal production.

In addition, El Nino exacerbated the occurrence of haze from Indonesia, as the dry conditions have led to hot spots burning more readily. The haze may also hinder photosynthesis, resulting in smaller fresh fruit bunches.

Kuala Lumpur Kepong Bhd (KLK) group plantation director Roy Lim Kiam Chye said: “Normally during dry weather, we would generally see the full impact on productivity nine to 12 months after the event.”

KLK’s oil palms have experienced some poor growth arising from the dry weather which took place during the second quarter of the financial year 2014, although this was not related to El Nino.

Should El Nino hit Malaysia or other oilseeds producing countries, he said the implication would be lower production “but not immediate”.

However, buyers would still take that into consideration and it might prove to be the catalyst to push the CPO price higher, added Lim.

Palm oil industry expert MR Chandran said that El Nino, if it materialises, could give a 15-20% boost to the CPO price. The third-month CPO futures for December traded at the RM2,200-2,240 per tonne range from its low of RM1,867 per tonne in August.

“El Nino could create a bullish price environment for palm oil and even reduce the risk to earnings among plantation companies,” said Chandran adding that it was also one of the key indicators for the plantation sector’s growth.

Any rainfall deficit of 100mm per year could translate into a reduction of between 10% and 20% in fresh fruit bunches. In Malaysia, the average rainfall varies between 1,600mm and 2,400mm per year.

For this year, Chandran said the factors to watch for palm oil were the potential supply shortage, the inventory level, the price discount between CPO and soybean, and climate changes including El Nino. Source: The Star Online, Sept 28, 2015

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Indonesia, Malaysia to set up palm oil council

Indonesia and Malaysia plan to set up an inter-governmental organisation of palm oil producers to ensure further industry cooperation between the world’s top producers and to prop up prices.

The organisation, to be called the Council of Palm Oil Producer Countries, will coordinate production, manage stocks and stabilise prices, Indonesia’s Coordinating Minister for Maritime Affairs Rizal Ramli said at a joint news conference with Malaysian officials in early October.

“If we are on our own, there will be unnecessary competition. But if we’re together, we’ll control 85% of the palm oil market,” Rizal said, adding he will invite Thailand – another palm oil producer – to join the council.

The Hon. Datuk Amar Douglas Uggah Embas, the Malaysian Minister of Plantation Industries and Commodities, said the council would promote sustainable practices in the palm oil industry.

Ramli had led an Indonesian delegation to Malaysia at the end of August to discuss the plan, and an agreement for further cooperation had been reached.

In mid-October, Indonesian President Joko Widodo held a meeting with Malaysian Prime Minister Dato Sri Najib Abdul Razak.

The Malaysian PM then told reporters: “The cooperation will bring many benefits to smallholders and the industry as a whole. The council is set to create a global standard for a sustainable palm oil industry, cooperate on the volume of the stockpile and create a formal structure.”

Sources: Reuters, Oct 3, 2015; The Star Online, Oct 12, 2015

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Malaysia to restrict CPO imports to manage inventory

Malaysia has issued notice to traders that crude palm oil (CPO) imports will be restricted, to bring down the current inventory of 2.49 million tonnes to two million tonnes.

Plantation Industries and Commodities Minister, the Hon. Datuk Amar Douglas Uggah Embas, said the country aims to “bring down stocks at a comfortable level of about two million tonnes… give or take 5% tolerance”.

“I brought this up at the bilateral meeting [with Indonesia in October] and explained the rationale … The Indonesian government understands that we are trying to manage our stocks and [has] accepted it,” he told the media.

The minister also clarified that this does not amount to an outright ban, as traders can appeal to his Ministry for exemption if they have committed to long-term contracts.

“We want to minimise Malaysia’s CPO import volume. If we don’t do anything now, palm oil inventory could exceed three million tonnes by November,” he said.

He also said the government plans to raise the biodiesel mandate from B7 to B10 to spur local palm oil consumption. However, he declined to reveal the date for introduction of B10 biodiesel, which comprises a blend of 10% palm methyl ester and 90% petroleum diesel.

On the impact of the Trans-Pacific Partnership Agreement, he said “our palm oil, rubber, timber and value-added derivatives should not face trade barriers in member-countries”.

“We hope to see better market access and therefore rising exports to this trading bloc,” he added.

Source: New Straits Times, Oct 7, 2015

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Replanting incentives for oil palm companies in Malaysia

The Malaysian Palm Oil Board announced on Sept 26 an allocation of RM100 million for a replanting programme geared to oil palm plantation companies. Effective from Oct 1 to Dec 31, 2015, it will be based on a first come, first served basis.

An incentive of RM1,500 per ha will be disbursed for the first 33,000 ha, followed by RM1,000 per ha for another 50,000 ha. Thus, the total replanting area targeted will be 83,000 ha of unproductive old oil palm plantations.

Smallholders are not included as they are covered under a separate replanting programme, for which RM9,000 per ha had been allocated in 2014.

The plantation replanting programme is expected to reduce crude palm oil production by 250,000 tonnes in 2016 which, in turn, will have a medium-term, positive effect on the price.

Source: GAIN Report, Oct 6, 2015  

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Malaysia seeks removal of palm oil from US ‘forced labour’ list

Malaysia is appealing to the US Labour Department to remove its palm oil from the list of goods produced by child or forced labour.

Plantation Industries and Commodities Minister, the Hon. Datuk Amar Douglas Uggah Embas, noted that the department’s criteria in assessing child or forced labour includes the withholding of passports of foreign workers and payment of low wages.

“The government has undertaken an independent study, covering 68 plantations throughout the country, and it [has shown] that incidents of this nature are negligible. Thus, it is unfair of the department to list the Malaysian palm oil industry alongside others,” he said in his keynote address at the Global Oils and Fats Forum USA 2015.

The two-day event was jointly organised by the Malaysian Palm Oil Council (MPOC) and Malaysian Palm Oil Board (MPOB).

He said Malaysia had implemented a minimum wage structure since January and that the government would continue to ensure the welfare of foreign workers in the plantation sector, with employers subjected to domestic laws and regulations.

“This is one of the criteria in the Malaysian Sustainable Palm Oil certification process,” he said, referring to the scheme aimed at ensuring sustainable production of palm oil.

In relation to the conclusion of the Trans-Pacific Partnership Agreement negotiations, the Minister was optimistic that palm oil trade with the US would be further enhanced.

He expressed hope that US consumers would increase their consumption of palm oil products as these are nutritious, healthy, competitively priced and responsibly produced.

“The benefits are proven through studies by both independent research institutions abroad and the MPOB. The research and development findings by MPOB together with its research partners have gained recognition by the international research fraternity,” he said.

“Today, in light of the adverse effects of trans fatty acids from hydrogenated oils, palm oil is much sought after as the global solution for trans-free food formulations. We are fulfilling the challenge and the inclusion of palm oil as an important ingredient in trans-free formulations is already much evident.”

He said the Malaysian palm oil fraternity is ready to pass on such knowledge and expertise to friends in the US and other end-users in the region.

The Minister also led a two-day palm oil promotion mission to the US from Oct 14 to strengthen exports, while promoting business links between the private sector in Malaysia and the US. The delegation comprised representatives of his ministry, MPOB, MPOC and the private sector.

Source: Bernama, Oct 15, 2015

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European countries say ‘No’ to GMO crops

A total of 19 EU countries have ‘opted out’ of growing crops with genetically modified organisms (GMOs) within all or part of their respective territories, following the Oct 3 deadline to notify the European Commission (EC) of their decision.

These governments have taken the ‘opt-out’ clause of a rule passed by the EC in March that allows its 28-member bloc to abstain from growing GMO crops, even if these are already authorised to be grown within the union.

According to Reuters, the member-states specifically targeted the cultivation of Monsanto’s MON 810 maize, the only GMO crop grown in Europe (and just in Spain and Portugal) and which is currently under review at the European level.

EC spokesman Enrico Brivio confirmed to Reuters that the countries opting out are Austria, Belgium for the Wallonia region, Britain for Scotland, Wales and Northern Ireland, Bulgaria, Croatia, Cyprus, Denmark, France, Germany, Greece, Hungary, Italy, Latvia, Lithuania, Luxembourg, Malta, the Netherlands, Poland and Slovenia.

Belgium and the UK are applying the opt-out rule for only part of their territories, while Germany requested a partial opt-out in order to pursue more GMO research. Companies have been notified of the member-states’ requests and have one month to react to the decisions.

Although GMO crops are widely grown in many parts of the world, the topic is fraught with contention in Europe. Many EU countries have strict laws against GMOs out of public health and environmental concerns, and all 28 nations require GMO labelling.

It now looks like many European countries want to deal with this contentious issue within their own borders.

“As the number of requests from member-states shows, national governments are now using this legislation to have a greater say on cultivation on their respective territories,” the EU’s executive arm in Brussels said in a statement.

Many environmental groups have applauded the national GMO crop bans.

“A clear majority of the EU’s governments are rejecting the EC’s drive for GMO crop approvals,” Greenpeace EU food policy director Franziska Achterberg said in a statement. “They don’t trust EU safety assessments and are rightly taking action to protect their agriculture and food … The only way to restore trust in the EU system now is for the EC to hit the pause button on GMO crop approvals and to urgently reform safety testing and the approval system.”

Monsanto had commented in early October that it would respect the decisions of Latvia and Greece after the two nations decided to stamp out GMOs.

The multinational agribusiness giant told Reuters that since the growth of GMO-crops in Europe is so small, the opt-outs will not affect their business. However, the company said that the two countries were ignoring science and refusing GMOs out of “arbitrary political grounds”, adding that the decision “contradicts and undermines the scientific consensus on the safety of MON810”.

Source:, Oct 5, 2015

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Oil palm expansion scheme for smallholders in the Philippines

The Philippine government is to invest P1 billion in oil palm planting that promises to convert poverty to prosperity for smallholders.

Dr Pablito P Pamplona of the Philippine Palm Oil Development Council Inc said this at a Malaysian Palm Oil Council Forum in Davao on Oct 16. Some 170 stakeholders attended the forum themed ‘Health, Progress and Sustainability through Malaysian Palm Oil’.

Pamplona said there will be a lot of benefits if the government makes the seedlings available to smallholders under the ‘Plant now, Take Care’ programme, and invests P1 billion in the expansion programme.

“The distribution [of seedlings to] small landholders is expected to convert idle, underutilised agricultural lands, grass and brushlands to agro-reforestation and high productivity within a total of 7,143 ha; liberate 3,571 farmers from poverty, assuming that each is provided planting materials good for two ha or 240 plants; and create 5,000 farm jobs and 80 milling jobs,” he said.

“It will also produce crude palm oil for import substitution – at a yield of four tonnes of palm oil per ha annually at P30,000 for 20 years, amounting to P18,286,080,000.”

Pamplona also pointed out that the programme will generate some P750 million in foreign and local investments by way of the construction and operation of two milling plants; increased business activities in rural communities; and higher tax revenue for Local Government Units.

He said the cost to the government of planting the million seedlings at P200 will translate to P200 million. Another P20 million for seedlings distribution and training of farmers may be included, bringing the total to P220 million.

As initial government action, the Department of Agriculture will add a budget allocation of some P50 million this year, compared to the previous year’s allocation of only P1 million. The money will be utilised to provide assistance to farmers, and for fertilisers, seedlings and research and development activities.

The Philippines currently has 75,000 ha planted with oil palm, of which 69,000 ha are in Mindanao; the rest are in Palawan and Bohol.

It imports 350,000-400,000 tonnes of palm oil valued at P35 billion annually, from Malaysia, Indonesia and Singapore, among others.

Source: The Sun.Star Davao, Oct 17, 2015

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Sime Darby launches hotspot monitor

Sime Darby Plantation has launched a hotspot monitoring dashboard in the interests of transparency and to provide insights that could lead to long-term solutions for the recurring haze situation.

“The dashboard is based on the company’s real-time monitoring system, which is managed in Kuala Lumpur and Jakarta,” Managing Director Datuk Franki Anthony Dass said in a statement.

Alerts are immediately communicated to estates, which will then verify if there is indeed a fire and if there is one, it will put it out immediately.

“The system complements the response measures on the ground, such as observation towers and regular patrols,” he said.

This year, the company detected 17 hotspots, of which 14 had fires. Six of them were outside its concession area.

The dashboard is available on the company’s website at

The company has also been engaging communities in partnership with local authorities and academic institutions to better understand the traditional land-clearing methods that involve slashing and burning, and to raise awareness of sustainable farming practices.

PT Bhumireksa Nusa Sejati, the company’s subsidiary, and the University of Riau have been training communities in sustainable farming practices and educating them on the benefits of zero burning. As a result, the number of hotspots in the community has fallen to just three from 40 previously.

The company said it pioneered the zero burning replanting technique in 1985 and this is now recognised as an industry standard. This led to the company winning an award from the United Nations in 1992 for its environmental achievements.

Source: The Star Online, Oct 7, 2015

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